Press Release

JCR-VIS Reaffirms Entity Ratings of KotAddu Power Company Limited

Karachi, December 18, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of KotAddu Power Company Limited (KAPCO) at ‘AA+/A-1+’ (Double A Plus/A-One Plus). Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on November 24, 2016.

The ratings take into account KAPCO’s strong business profile emanating from its strategic importance in local power sector. While re-emergence of sizeable intercorporate debt poses challenge to financial profile, comfort can be drawn from the company’s ability to partly finance its receivables from payables. The company has a distinct advantage of having sovereign as the major shareholder, power purchaser and supplier. The ratings also incorporate government guaranteed cash flow stream under the agreement upon meeting certain performance benchmarks.

Net sales of the company increased in FY17 on account of higher power dispatch. Gross margins however decreased mainly on account of two major overhauls and relatively lower thermal efficiency during the year. With higher net income, Funds from Operations (FFO) of the company increased in FY17. Debt service coverage ratio reflects strong capacity of the company to meet timely debt obligations. The company has financed increasing level of receivables with the combination short-term debt and trade payables. Resultantly, gearing and debt leverage stood higher by end-FY17.

The company’s plan to establish a coal based power plant is not certain as the government has changed its policy with respect to construction of new power projects on imported fuel. Keeping in view the expiry of its Power Purchase Agreement in 2021, KAPCO is considering various investment options to establish a stable income stream, going forward.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 (Ext: 234) or Mr. Maimoon Rasheed at 042-35723411-13 (Ext: 8008).

Javed Callea

Applicable Rating Criterion: Industrial Corporate (May 2016)

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited VIS does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS, the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is not an NRSRO and its credit ratings are not NRSRO credit ratings.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 VIS Credit Rating Company Limited. All rights reserved. Contents may be used by news media with credit to VIS.

JCR-VIS Credit Rating Company Limited